Ibrahim Sameer (MBA - Specialized in Finance, B.Com Specialized in Accounting & Marketing)

Transcription

1 Ibrahim Sameer (MBA - Specialized in Finance, B.Com Specialized in Accounting & Marketing)

2 Introduction Imagine the world without traffic law and enforcement! Think how people will behave.

3 Introduction

4 Introduction Now, can you imagine the accounting profession without rules and regulations?

5 Accounting Bodies in Malaysia Malaysian Institute of Accountants (MIA) The Malaysian Institute of Certified Public Accountants (MICPA) Malaysian Accounting Standard Board (MASB) Financial Reporting Foundation (FRF)

6 Malaysian Institute of Accountant (MIA) Established under the Accountants Act (1967), MIA is an authoritative body regulating the accounting profession. The main functions of MIA are to:

7 Malaysian Institute of Accountant (MIA) Determine the qualifications for members. Provide training and continuing professional education to existing and potential practitioners. Control the accounting practice in Malaysia.

8 The Malaysian Institute of Certified Public Accountants (MICPA) The Malaysian Institute of Certified Public Accountants (MICPA) was formed as a professional body in 1958 under the Companies Act The functions and objectives of MICPA are to:

9 The Malaysian Institute of Certified Public Accountants (MICPA) Advance the theory and practice of accountancy in all its aspects. Recruit, educate, train and assess a body of members skilled in these areas.

10 The Malaysian Institute of Certified Public Accountants (MICPA) Preserve at all times the professional independence of accountants. Maintain high standards of practice and professional conduct by all its members.

11 Malaysian Accounting Standard Board (MASB) Established under the Financial Reporting Act 1997 as an independent authority to develop and issue accounting and financial reporting standards in Malaysia, the main functions and authority of MASB are to:

12 Malaysian Accounting Standard Board (MASB) Issue new accounting standards [Financial Reporting Standards (FRS)] as approved accounting standards. Review, revise or adopt existing accounting standards. Issue statements of principles for financial reporting.

13 Malaysian Accounting Standard Board (MASB) Sponsor or undertake development of possible accounting standards. Conduct public consultation as necessary.

14 Financial Reporting Foundation (FRF) The Financial Reporting Foundation (FRF) is established under the Financial Reporting Act 1997 (Act) together with MASB. The FRF comprises representation from all relevant parties in the standard setting process, including preparers, users, regulators and the accountancy profession.

15 Financial Reporting Foundation (FRF) Functions and Powers of FRF are: Review the performance of the MASB. Approve the MASB budget. Maintain proper accounts and prepare an annual statement of accounts of the FRF.

16 Financial Reporting Foundation (FRF) Financial and funding arrangements and as an initial source of views for the MASB on proposed standards and pronouncements.

17 Accounting Standards Accounting standards are guidelines that need to be adhered by the accounting profession in preparing and reporting of the financial statements.

18 Accounting Standards Section 166A of the Companies Act 1965 requires directors of companies incorporated under the Act to ensure accounts are prepared in accordance with the applicable accounting standards to the extent that the accounts give a true and fair view.

19 Accounting Standards In Malaysia, the approved accounting standards comprise of the followings: (a) Financial reporting standards issued by MASB; (b) International accounting standards issued by International Accounting Standard Board (IASB); and (c) Technical pronouncements published by MASB.

20 Accounting Assumption Financial accounting is based on several principles known as Generally Accepted Accounting Principles (GAAP) (Williamson 2007). Separate Entity Going Concern Monetary Unit Accounting Period

21 Separate Entity Every business requires to be accounted for separately by the proprietor. Personal and business-related dealings should not be mixed.

22 Separate Entity

23 Separate Entity For example, Kak Long owns three different businesses: a restaurant, a laundrette, and a grocery store. Imagine, if only one account is prepared for all business, would she be able to identify which business is profitable or not?

24 Going Concern The business will continue operating and will not close but will realise assets and discharge liabilities in the normal course of operations.

25 Monetary Units All transactions can be measured in monetary units. In Malaysia the monetary unit is Ringgit Malaysia (RM). Items that cannot be measured in monetary unit will not be reported in the financial statements but disclosed as notes. Transactions in foreign currency will be converted in RM for recording purposes.

26 Accounting Period This assumption states that the life of a business entity can be divided into periodic intervals. The accounting year of a 12 month period has been established as the normal period for reporting. Accounting year or fiscal year can start at any period but normally it is from 1 st January until 31st December

27 Accounting Principles

28 Historic Cost This principle states that all transactions must be recorded and accounted for according to their historical cost, in other words, the original cost incurred at the time of transactions as agreed by both buyer and seller.

29 Revenue Recognition This principle states that revenue must be recognised when they are earned. Earned commonly refers to the act of providing goods or services to customers. Recognising revenue means the amount is recorded in the account.

30 Revenue Recognition Delivered product / service though you didn t received money you should recognized the revenue. The opposite apply to cash received in advance. Though you received money in advance but not have performed any service provided, you cannot record amount received in cash as revenue.

31 Revenue Recognition The same applies to the recognition of expenses, where expenses should be recognised when it is incurred not when cash changes hand. If you have received the goods or services, although payments are to be made in the future, expense must be recognised at that time.

32 Matching Under the matching principle, when you record revenue, you should also record at the same time any expenses directly related to the revenue. Thus, if there is a cause-and-effect relationship between revenue and the expenses, record them in the same accounting period.

33 Matching Eg: Commission: A salesman earns a 5% commission on sales shipped and recorded in January. The commission of $5,000 is paid in February. You should record the commission expense in January.

34 Full Disclosure This principle states that all relevant and material information must be adequately disclosed either in the financial statements or as notes accompanying the statements.

35 Full Disclosure Eg: Accounting policies need to be disclosed because they help understand the basis of accounting. Significant events occurring after the date of the financial statements but before the issue of financial statements (i.e. events after the balance sheet date) need to be disclosed.

36 Types of Business

37 Merchandising / Retailing / Trading The business main activities involve purchasing goods which are then sold to customers. Examples are supermarkets, departmental stores, wholesalers and grocery stores.

38 Manufacturing Manufacturing firms convert raw materials into finished goods. Oil Refinery Car Co. Toys Co.

39 Services This business provides services to its customers.

40 Types of Ownership Business Sole trader Partnership Company

41 Sole Trader / Sole Proprietorship The ownership belongs to any one individual. The formation of this type of business is relatively easy as there are only a few legal requirements required before starting the business.

42 Sole Trader / Sole Proprietorship For accounting purposes, the owners are considered a separate entity from the business, however for legal purposes the owner and the business are one entity.

43 Advantages Sole proprietorship is easy to set up. Owner has full control over the business decisions and activities. Income of the business belongs to owner, and not shared with other people. Compared to other form of business organisations, it has less legal requirement.

44 Disadvantages Difficult to expand as expertise and capital might be limited. Owner bears all the risks. Unlimited liabilities.

45 Partnership This type of business is owned by two or more individuals, called partners. Just like the sole trader the formation requires no or little legal requirements. However, an agreement must exist between partners normally on how the profit or losses should be shared.

46 Advantages Higher sources of capital as owners are more than one. Partners might have additional skill and expertise to strengthen the business partnership. Unlike companies, partnership is not required to disclose business information to an external party.

47 Disadvantages Unlimited liabilities. Conflicts among partners will lead to instability in the management of business. Lack of continuity; partnership will dissolve if one partner dies, or pulls out of the partnership, or is declared bankrupt.

48 Company (Corporation) A company is a separate legal entity from the owners, in other words an artificial person that can conduct business in its own name, unlike sole trader and partnerships.

49 Company (Corporation) Companies like Coca Cola and Maxis are owned by many people called shareholders. Shareholders are people who own shares in the company.

50 Advantages Limited liabilities. Easy to expand as they can issue shares and debentures to generate funds as capital. Continuity. Shares can be transferred from one person to another easily.

51 Disadvantages Subjected to rules and regulations of the government. Ownership is separate from the management. Set up cost is high compared to other forms of business.

52 Q & A